STRONG REBOUND WEEK IN MACAU

Macau seems to have bounced back last week following a disappointing 1st half of the month. This past week posted average daily table revenues of $1.107 billion, up 43% over last year. Our guess is that hold played at least some role but we have no confirmation of that. We are upping our full month projection to HK$25.0-25.5 billion, up 6-8% YoY. While that growth rate is probably disappointing given the favorable calendar shift of Chinese New Year (CNY) into February this year, on the margin, it’s better than the flattish growth expected just one week ago.

Market shares have normalized somewhat with Wynn falling back to Earth and MPEL rebounding from low hold. With limited rooms MPEL also seemed to have spread some of its VIP and Direct Play business beyond just the CNY period. Consistent with a trend we foresee for the entire year, Sands China’s share continues to climb.

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02/25/13 09:17 AM EST

Best Ideas Product Launch Part 2

Hedgeye Risk Management invites you to join us Wednesday, February 27th at 1:00pm EST for our Best Ideas Launch Part 2. This call will be a follow-up to the introductory call of our dynamic Best Ideas Product which was held on February 11th. The new dynamic Best Ideas Product will track, update and notify clients of important changes and additions to the Hedgeye Best Ideas list.

On the call we will highlight our highest conviction calls across Macro, Financials, Industrials and Energy, offering at least two high conviction and differentiated investment ideas from each vertical over an intermediate term duration.

SPEAKERS WILL INCLUDE:

Macro- Daryl Jones

Sector Head at Brightpoint Capital. Founded the public investment effort at Onex Corporation, a leading private equity firm. Yale BA and Columbia MBA.

Financials- Josh Steiner

Part of the #1 ranked Institutional Investor and Greenwich Survey team at Lehman Brothers. Buy-side analyst at Amaranth Group & Millennium Partners.

Industrials- Jay Van Sciver

Co-Founder/Partner at Bishop & Carroll Capital Partners. 12 years as a financial analyst with buy-side coverage of the Industrials Sector.

Energy- Kevin Kaiser

Covers the oil & gas sector with a focus on fundamental research on E&Ps, oilfield services, MLPs and refiners. Princeton hockey alumnus.

CONTACT

Materials and dial-in information will be distributed the morning of the call. If you have any further questions please email .

2. European Financial CDS - The median European financial widened 6 bps WoW, while the worst EU financial was Credit Agricole at +11 bps (to 167 bps). Greek banks were the best performing group on the week.

9. Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 13 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

10. ECB Liquidity Recourse to the Deposit Facility – Deposits at the ECB liquidity facility rose 30 billion euros WoW. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system. An increase in this metric shows that banks are borrowing from the ECB. In other words, the deposit facility measures one element of the ECB response to the crisis.

11. Markit MCDX Index Monitor – Last week spreads widened 2 bps, ending the week at 92 bps versus 90 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

CHART OF THE DAY: Emotion Sellers

Emotion Sellers

“We live by emotion, prejudice, and pride.”

-Dwight D. Eisenhower

That’s what President Eisenhower wrote in a letter to Winston Churchill in the early 1950s after the Korean War. He added: “It is remarkable how little concern men seem to have for logic, statistics, and even, indeed, survival.” (Ike’s Bluff, pg 105)

Sounds a lot like risk managing the 2013 Global Macro market to me. So far, with the underpinnings of real (inflation adjusted) global economic growth stabilizing (instead of slowing), the best way to survive the game has been to be long growth, not gold.

We all have our investment-style prejudices. We all have plenty of emotion too. The hardest thing to do is keep that all checked at the door before we turn on our screens every morning. The Behavioral side of this game has never been so important.

Back to the Global Macro Grind…

Admittedly, I was all fired-up covering shorts and getting longer (equities) during last week’s 2-day correction. Was I being emotional? Or were the sellers? Now I’m questioning whether I got Bullish Enough?

At Augusta in 1954 the legendary Sam Sneed told Ike, “you’ve got to stick your butt out more, Mr. President” (Ike’s Bluff, pg 115). While Eisenhower didn’t like having other people tell him what to do, he listened. Sneed’s advice wasn’t from some local pro.

When I stick my old hockey bubble-butt out and make a market call, I don’t ask a local pundit for permission. It’s always based on two very important things that we are trying to hammer home with clients – they are both critical to our process:

1. The Risk Management Signal

2. The Team’s Research Views

Note which one of the two comes first. Indeed, it is the signal I prioritize over what can often become research noise. All that said, when both are aligned, I’m learning to get over how I look - and I just do it (stick out my butt).

When you boil down the difference between our bullish Research View on growth versus competitor views, it’s quite simple:

Their view is Commodity centric: they are either calling for inflation OR thinking deflation is a bearish leading indicator

Irrespective of your research team’s view, this is what Mr. Market’s signals think:

Strong Dollar = up another +1.1% last week; up for 3 consecutive weeks on a +3% run

Commodity Deflation = down another -1.7% last week; down for 3 consecutive weeks (-3.9% all in)

No, the world’s economies and stock markets didn’t end on that. In fact, despite Oil prices reacting late relative to Gold (Brent Oil finally down -2.9% last wk), the two key US consumption demand points we care on (US employment growth and housing) held up quite well. The question now is how well do they react to prices at the pump falling, instead of rising?

If you Embrace Uncertainty at the core of your process, the simple answer is usually going to be ‘I don’t know.’ You’ll know when market prices and high-frequency economic data either refute or support your thesis. Advice: don’t marry your thesis.

If you were buying commodities futures and options contracts since the Bernanke Top (September 2012), the CRB Commodities Index is one of the worst places you could have been invested (down -9% from there to here). And finally, in the last few weeks of Commodity Deflation, the net long (CFTC futures/options position) has capitulated to its lowest level since DEC 2011:

Copper contracts crashed last week, down -51%! to +11,413 (lowest since NOV 2012)

Gold contracts crashed (again) last week, down another -40% to 42,318 (lowest since JUL 2007)

Farm Goods contracts capitulated too, down -44% last week to 190,892 (lowest since March 2009)

Farm Goods still has the biggest net long position because food prices were the last of the commodities to put in their all-time tops. Corn’s all-time high was in August of 2012. Corn prices are now on the verge of crashing (greater than 20% peak-to-trough decline) from that all-time top and net long contracts in corn were down -48% last week to +65,303.

Are falling food prices good for you? Do you eat? If you don’t (or someone in Washington buys all your meals with our tax “revenues”), you can safely assume, with no emotion or prejudice, that the rest of the world does.

Hedgeye reiterates our 0% asset allocations to both Commodities and Fixed Income this morning. Sure, we will take down these equity asset allocations when the signals tell us too. But we didn’t get those signals at Thursday’s lows. Emotional sellers did.

Thank You!

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